China’s electric vehicle (EV) market is poised to achieve a significant milestone by outselling internal combustion engine (ICE) vehicles for the first time next year, marking a pivotal moment in the global automotive landscape. This transition positions China as the frontrunner in the automotive sector, outpacing its Western competitors.
According to projections shared by various investment banks and research groups with the Financial Times, domestic EV sales, which encompass both pure battery and plug-in hybrid vehicles, are anticipated to surpass 12 million units by 2025. This represents a year-on-year growth of approximately 20 per cent from 2022, during which 5.9 million EVs were sold. Meanwhile, the sales of traditional ICE cars are expected to decline significantly—by more than 10 per cent in 2024—falling to below 11 million units from 14.8 million in the previous year.
Robert Liew, director of Asia-Pacific renewables research at Wood Mackenzie, emphasised that the achievement of this EV sales milestone reflects China’s advanced capabilities in domestic technology development and its ability to secure vital global supply chains for the necessary resources to manufacture EVs and their batteries. He stated, “They want to electrify everything. No other country comes close to China.”
While the growth of EV sales in China has moderated from the rapid post-pandemic surge, the forecasts indicate that the country's goal for EVs to constitute 50 per cent of all car sales by 2035 will likely be reached a decade early. This shift creates significant implications for the automotive industry, suggesting that factories established to produce ICE vehicles may soon be left with minimal domestic demand.
The impact of China’s burgeoning EV market is also evident in the declining market share of foreign-branded vehicles. Data from Automobility, a consultancy based in Shanghai, reveals that the market presence of foreign brands has fallen to a historic low of 37 per cent as of 2024, a stark drop from 64 per cent in 2020. This decline raises concerns for established car manufacturers in Germany, Japan, and the United States who are grappling with the metamorphosis of the automotive market, compounded by factors such as government subsidy uncertainties and increasing protectionism.
Recent financial reports have illustrated the struggles facing foreign manufacturers in China. General Motors declared a write-down of over $5 billion related to its operations in the country, and there are warnings from the holding company behind Porsche regarding a potential writedown of up to €20 billion in its Volkswagen stake. Furthermore, Nissan and Honda are adapting to what they describe as a “drastically changing business environment,” even considering possible mergers.
Despite the clear growth trajectory, the Chinese EV sector is not without its challenges. Yuqian Ding, a senior analyst at HSBC, noted that while the sector is a crucial element of China's high-tech economy, the intensifying competition is likely to lead to consolidation, squeezing out less competitive players in the market. “While China’s domestic EV sector is clearly flourishing, it is also facing slowing growth,” she remarked, highlighting issues such as oversupply and a price war intensifying within the industry.
As analysts like Tu Le, founder of Sino Auto Insights, suggest, the automotive sector is only at the beginning of a transformative phase, further affirmed by Vincent Sun from Morningstar, who pointed out that many established multinational manufacturers, including Volkswagen, are not expected to launch significant new EV models until 2025 or 2026.
Looking ahead, HSBC posits that approximately 90 new car models are set to hit the market in China in the fourth quarter of 2024, nearly all of which will be electric vehicles. Nevertheless, risks persist, as Paul Gong from UBS warned of potential uncertainties in China’s economic policies entering 2025, predicting a slow start to the year despite a robust finish to 2024. However, he also indicated that a surge in purchases is expected at the close of 2025, spurred by the end of government subsidies and the introduction of a purchase tax on electric vehicles in 2026.
Source: Noah Wire Services